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The truth behind China’s Underground Wholesale Markets.

As some of you will know I opened my second factory here last year and have been extremely busy with that, I figured not many of you will get any value from a blog post about “How to open a foam recycling plant in China” but perhaps a quick look at the world of Chinese Wholesale markets might be useful to some of you.

Now when I first came to China I spent a great deal of time trawling these wholesale markets, learning how it all works. In those early days I made a bit of money, lost about 3 times as much, but more importantly I cut my teeth and learnt from my mistakes. I hope some of the tips I picked up might prove of some use and save you some of the headaches I had myself.

So, a wholesale market, what is it? In China there are a lot of extremely large and somewhat repetitive shopping complexes aimed at foreign wholesale buyers. There is quite literally a market for every conceivable product from human hair extensions to office furniture – you name it and there is likely a market here dedicated to it.

I have to admit it. When I first visited one of these places and came across wholesale outlets for Apple, Samsung and Sony I thought I had made it. Hidden back alley outlets from people with genuine contacts at manufacturers for these brands, great factory direct pricing from the nephew of one of Panasonics main OEM factories, a warehouse unit full of stock from Mrs Zhang who’s husband is a delivery driver for Toshiba and drops a few pallets off on his way home from work.

All sounds too good to be true right? Well let me tell you, all these little stories and more are just a taste of what I have heard in my years of dealing with Chinese suppliers and I have learnt one thing. If some kids uncle really works for Panasonic then he will be far too busy flying around town in a drop top Lamborghini to be sat smoking 200 cigarettes a day in a shit hole of a wholesale market talking to me.

Like most people in business will tell you, there is rarely a get rich quick scheme here or an easy way to make money from China. Sure as hell, buying a load of Sony laptops will make a lot of money but really that isn’t going to happen – at least not in the way your thinking about right now, more on that later.

What I am saying is that you wont find any glaringly obvious golden gooses in these places but there are certainly enough money making opportunities still available, I know that for a fact.

I will start off with some advice. Know what you want to buy. Turning up to China with a fist full of cash and no idea what you want is like a newly abdicated priest turning up to a strip club with his lifes savings.

I also say the same thing for those of you visiting Canton Fair. If you turn up with no real plan then your mind will be blown, and not in a good way. Too many times I have taken clients to a trade show and they have left more confused than when they arrived. There is a lot of choice, too much, and if you don’t single out some products to negotiate hard on and get where you need to be on price you will come away with a thousand product ideas but no real indication on pricing, market demand or availability.

Secondly, know your product. When you begin negotiating with a potential supplier you will be bombarded with questions about the product. Those of you familiar with talking to Chinese suppliers will know what I mean. They love to ask you questions.

While its obvious that you really need to know what it is your looking to order what you may not realise is that your supplier is also vetting you. If you don’t know your product well then it will be assumed that you don’t know your market well, if you don’t know your market well then it is likely that you don’t know the market value of your product well, if this is the case then you will not be able to negotiate hard on the pricing as your supplier probably wont take you very seriously. At worst they may think of you as a novice that just might pay over the odds for your order so they can make this months repayment on the new Porsche they have sat in the parking lot downstairs. Oh yes don’t let that drab outfit fool you, this guys driving a Porsche.

I wasn’t on the school football team as really I wasn’t that into football but if I had gone to my PE Teacher and said, Excuse me Mr Hannoford I really want to be the captain of the football team but I am not sure how play football and I don’t really know if I want to be in goal or play upfront I can be sure he would not have taken me very seriously. Really to do well in China you have to be taken seriously, so act a little serious.

Have some ideas what you want and know every detail about it. Please.

As I said, there is no end of these wholesale market places here. Quite often certain provinces in China cater for specific product areas such as ceramics or kids toys so travelling to a different area can reap better pricing or product choices. For the purpose of this blog post I will write about one of the many electronic markets in Guandong Province, mainly because I am going there today to place an order for a client.

This market specialises in electronic gadgets from CCTV systems to mobile phones to Segways. A lot of these markets have specific sections dedicated to set areas, sometimes they are not so separated and you have to use your wits a bit.

Section 1, the fakes.

In one section we have the copy goods or fake branded products depending how you want to call them. These are straight up fakes in varying qualities – usually not very good. If a product exists then there is a fake for it. Some are “kind of” convincing and I know of people here selling them on as originals. Others are just terrible rebrands such as a Gucci phone or an Apple pair of trainers. There are the obvious things you will find here like copy watches but also you get some things you wouldn’t expect too.

These sellers will usually straight up tell you an item is a “copy” which is the general term used here for fakes. If they think you look like a bit of a mug then you may well be told an item is original.

On most items the sharp eyed of us can tell an original from a copy, say on something like a laptop or a mobile phone. On something like a memory card or an audio amplifier it’s a bit more complicated as the true “value” of the product cant be seen or felt in that instance. Though they look good and come in all the right packaging these memory cards and usb sticks all contain “fake memory” and will not hold the data they claim to.

The same can be said for these audio mixing desks. Every brand available, all with the correct paperwork, guarantees, boxes, accessories and sales patter. Extremely hard to tell if they are genuine or not unless you 100% know what your looking for.

This is where one piece of advice is quite useful.

You can’t buy new original branded goods from wholesale markets at vastly discounted prices. Why? Because if you could all the real shopping malls in China would not price branded goods at such huge markups compared to the western world.

Im quite good at losing my phone, im on my 7th iPhone now. I recently bought another new one here and paid just under 600 gbp for it. If you could buy genuine branded electronics here at discounted wholesale prices would this iPhone have been so expensive in a local retail shop?

Stop being taken for a ride. You wouldn’t let some lad mug you off in the carpark of the Duck and Pond pub back in England with a car boot full of dodgy jeans so don’t accept it here.

Some of the fakes make you laugh though. Yamaha speed boat engine anyone?

Section 2, the “Same Same Original” fakes

So now onto the grey market areas where you will be convincingly told by that scruffily dressed guy with the Porsche downstairs that his Samsung tablet PC’s are genuine. This is happening more now on the less obvious things like the memory cards I mentioned above as people here are finally starting to grasp the reality that the fake iPhones really are fake. Saying that, this place below is selling exact copy iPhones for 70 gbp.

Still you can pick up extremely good copies here if that’s your thing. A popular item has been the Beats by Dre headphones for instance. This shop below is selling them and the copies look superb, all in correct packaging and with carry cases etc. Dr Dre will be pretty annoyed at this im sure.

These shops have a lot of great stories as to how they came across these goods and you would be forgiven for believing one of them to be honest, they can tell a good story.

I have to say though that I have actually found myself in a few situations where I could buy real branded goods directly out of the factory. About a mile from my foam recycling factory there is a big shoe factory that we collect scrap foam from. They are a main manufacturing house for an extremely popular and overpriced sports shoe brand. Every Friday there is a “workshop sale” where you can buy these shoes. They are supposed to be seconds but really are just fine and they sell them for around 5 gbp a pair. Quite a few people turn up in vans and load them up. I’m sure if the brand owners heard about this the factory would be in a little hot water and likely lose the manufacturing contract.

I am not telling you this to sell you a container of sports shoes I am telling you it so you realise something important that you probably hadn’t even thought about yet.

When this container of incredibly priced shoes arrives at customs and you are getting them inspected before they clear through and can be delivered to your warehouse what will happen when they ask to see your documentation allowing you to import a trademarked brand? You guessed it. Best case scenario you lose the goods, worst case you lose a lot more. In fact so many shipping companies are sick of this headache they may ask to see your trademark rights documentation before shipping the goods.

So an important lesson to be learnt is that even if by some miracle you end up taking home the owners daughter of a brand name manufacturing facility one night and by some stroke of stupidity her dad undervalues his manufacturing contract with them and agrees to sell you some out the back door just how do you intend to circumnavigate the legal laws of trademark brand distribution agreements in your country?

Section 3, the Refurbs.

Then you have the new kid on the block – The refurbished electronics sellers. I mentioned earlier that you would not be able to buy branded goods in the way you were thinking, well this is what I was talking about.

These are “genuine products” which did actually start life as a factory original item. They are then stripped down with the internals removed and replaced with Chinese copy parts. Hard drives, screen, processors, camera lenses, and casings are all stripped off and sold for a profit then replaced with inferior, but working replacements.

Also you can get refurbished models which are units that have developed a fault at some point and have been repaired with original parts but quite often determining if the parts were original or not is near impossible.

These places are becoming more and more popular now as countless foreign markets emerge where branded originals are extremely expensive. Not for instance in the UK and USA where branded originals are actually quite good value. I am talking about African, Middle East and South American countries where high demand and low supply for genuine branded goods means that these lower quality refurbished models have a good market.

These refurbs are available to look completely as new, all in the correct packaging as if they had come straight from the factory. It’s a growing business here and one I have dabbled in myself. You can pick up a refurbished iPhone 5 here for around 220 gbp, there are a lot of markets out there where you can make profit on that kind of figure if your smart about it. Again just know what you are buying and keep sharp.

Refurbished goods come in pretty much any form you can imagine but all follow the same process detailed above. Some of them are pretty sneaky and only a true expert would know the internals have been swapped out for cheaper parts, take these video cameras and digital SLR’s below for example, think of all the expensive internals that could go missing before you would really notice it.

Section 4, the real deal

These sections have emerged to cater for the markets mentioned above but really I am quite surprised they actually get much business. They do infact sell genuine new branded goods but they are extremely expensive.

You have to remember that in some parts of the world it is next to impossible to nip out and get say, a 70” Sony Led TV. If you want one of them you will pay whatever the cost.

I always remember when I first started importing bicycle parts into the UK around 2003. I was buying them from Poland before assembling them in the UK. I would order them from the manufacturer and they would load up a long wheelbase Mercedes sprinter van and send over 2 guys to deliver them. These 2 guys would drive in shifts for a day to get the parts to me. They would unload them, drink a cup of tea my mum had kindly offered them (as she seems to do for anyone who happens to wonder up our driveway) and then they would ask me where they could buy various things from to take back to Poland. One of these things was always motorbikes. KTM enduro bikes to be exact. This particular KTM model in the UK at the time was around 3500 gbp, in Poland they were selling for 9000 gbp. I remember the first time they pulled out a polish motorbike magazine and showed me an advert with the price, I knew I was in the wrong business!

So these shops cater for these types of people, maybe they will only ever do business with the shop once, buy the things they need then return back to their home countries. I have met a lot of interesting people from African countries who are opening hotels or bars there and come here to buy the products that just aren’t available back home.

Like this guy below who has travelled here to buy two hundred 32” lcd tv’s his boss needs for the hotel bed rooms in his latest development because there is no place where they come from to buy such things. Many times I have shown them the price in the UK on my ipad and they have been close to jumping on a plane to make a call into an Argos store.

These sections aren’t much use to someone like me but are interesting to visit and mingle with a few of the lively foreign characters there to get a feel for what is happening in other parts of the world and perhaps find someone you could do a bit of business with that you hadn’t been expecting when you got out of be that morning. That’s the fun of it right?

Section 5, the Chinese goods.

So in reality this is the section which I work with the most and where I would advise those of you looking to make money from China to start with. Unbranded consumer goods. No smoke and mirrors, no legal loopholes and no risks. (read as “slightly less” risks)

We are talking about products which don’t need a well know brand name slapped on them to sell well, and there are a ton of product niches here that fit this bill. You can even rebrand products with your own logo and add some “brand history”, I have done this countless times myself and it is a pretty straight forward and fun process that I will write a blog about in the future.

As consumers we buy things all the time that are not brand name, and some we even pay good money for. More often than not it’s an accessory for a branded item such as a camera tripod or an iPad case. Sure its intended to be used for a branded item but the actual product itself doesn’t need to be branded.

For instance I have a 700 gbp Canon camera but my stand, case, lighting kit, backdrop assembly, bag and flash stands are all unbranded. My TV is a Sony but its mounted to the wall with a 3 gbp wall mount i bought from this shop below. There are a million product niches like this, find one.

Looking through the products available here there is certainly a lot of crap, but even today I can see things that I know there is money in. Like everything from China some basic rules apply here. Most important is to remember that there is already someone selling this product where you intend to sell it, if there is not then soon after you start selling it there will be, this means you need to buy a reasonable amount to ensure a low purchase price so you can compete.

If someone is really killing it with a product you want to sell try to offer some added value to your customers. If it’s a phone LCD screen include a free installation tool kit, if it’s a tablet PC include a free carry case, if it’s a dining table throw in some nice place mats. If you can’t find a way to better your competition or create added value then pick another product, its not like there is a shortage.

These types of suppliers are a little more straight forward to deal with because at least they wont spend the first 5 minutes of the conversation trying to pretend the product is a genuine bla bla. That doesn’t mean however you need to take what they say as gospel.

So I hope you found that quick walkthrough of a wholesale market in China useful and maybe it answered a few questions you have had about where these types of products come from. Generally speaking if your not ordering stock by the container then these places are pretty good. I still use them myself when im doing smaller orders and it’s a good way to get hands on with products quickly.

If you spend a bit of time here you will see that each outlet you visit is more often than not posing as a manufacturer and they are active on sites like alibaba as “72 year old Platinum” suppliers, all from a 3 metre by 3 metre shop. Impressive.

To be fair though a few of these places really are manufacturers, you just have to pick through them. I will also say that sometimes there is nothing wrong with just buying from a wholesaler, they often get better pricing than you can get if you went to a manufacturer direct as they have good relationships and are buying a lot of stock each month so bear this in mind.

As for payments I would always suggest visiting the shop in person to make the order to make sure all the details are correct and to avoid any confusion. Be extremely detailed in the order, add specifics that seem common sense to you such as the length of the power cable as what you expect and what the supplier thinks is acceptable will often be different. Pay the deposit yourself and use cash, you will get a better price. Sometimes sellers give a better price if you pay in USD, its worth asking but that can differ from shop to shop. It’s a good idea to call the supplier every few days and check on things. Better still, to avoid rubbing them up the wrong way just get you Chinese staff to message them online every few days using the Chinese online message application QQ . The obvious advantage here it to make sure they keep on top of your order and don’t let the delivery dates slip and to make sure they are still open.

When the order is completed then again visit the supplier in person to inspect the goods, double check everything and pay the balance before shipping. Too many times when I have been to inspect goods there has been something wrong or missing, double check everything. Yes I intentionally wrote that twice.

Arrange the shipping yourself, its important to control as much of the process as possible and really the shop will likely try make a little profit on the shipping. I suggest you visit a local shipping agents office and get friendly with them. They can collect the goods from the supplier and deliver them directly to you.

There are, I think, enough tips in the other articles I have written on this blog about how to deal with a supplier but no matter how many times I do I deal I still need to be wary of basic trust issues. These shops can up sticks and leave, phone numbers can change and deposits can go walkies.

Just last month I paid around 1600 gbp deposit on a small order of watches. 2 weeks later I returned to see the shop had just left and been replaced by another seller.

Not a great deal of money so not a big deal but it has sometimes been worse and there is not a thing you can do.

This is China remember, a lot of people forget that and think doing business from here will be plain sailing, It wont be. You roll the dice, you take your chances, some times you win but sometimes you lose. At the end of the day it’s not for everyone but it is most certainly for me!

I love your post. Found this article by accidentally actually while i was browsing on wholesale website. I’m from Malaysia and I would like to start doing business. I’m trying to find trustworthy wholesale china website. Do you know few of china wholesale websites that can be trusted? I’m getting focus on branded shoes and shirts. Electronic items would be good too.

Im currently residing in Hangzhou, studying at ZJU. I am in my 2nd year of a masters here, and so have a lot more time on my hands. Me and my friend are interested in getting involved in some schemes just to cut our teeth, and get some interesting experiences.

This article has certinaly helped our brain-storming schedule. Anyhow if your ever travelling to our beautiful city let us know and we could grab a coffee.

Like you say try cut your teeth on a few things while your studying, make some mistakes and hopefully make a little money to but more importantly keep going until you find something that works for you.

Really great article. Thank you so much for sharing all your knowledge.

My question is – Can a complete beginner, like myself, based in the UK manage to source a reliable supplier for a small initial order. I don’t have much money to lose but need to find a regular, reliable income source. I’m not looking to be hugely rich but enough to help look after my family. Any advice gratefully received.

As useless as this statement may be to you i will make it anyway….. Asking if you can find a reliable seller in China who will provide you with quality goods that you can resell at a profit is I’m afraid a little like asking if putting it all on red or black at the casino is a good option. There are risks and unknowns involved just like in any business and I will be honest with you that sometimes you will lose in this game.

The trick is to minimise the chances of you losing.

Your best option is to try find someone you can trust 100% with your money. Thats one worry out of the way.

Secondly research your chosen product well, look at other selling it, see what you can do better to take their sales.

Thirdly know how to sell and promote your product, if you don’t know then learn – there is so much free info available online to teach you.

Can people still make a decent income from China? Well yes if these steps are adhered to with the addition of some common sense.

Thank you for your quick reply. I have since found another posting of yours that mentioned a minimum order value of $5,000. I have an idea – there is something I want to source/create but my guess is that it would involve dealing with two different manufacturers. I’m happy to email you privately with further details. My question is whether the $5,000 can be split initially between two suppliers?

Great post and congrats to all your efforts. I would like to read a post about exporting into China. Maybe you can contact with buyers that could buy our national products. In my case I woud like to export Quinua or maybe another hot product.

Hope you can think about a way to make your website a hub for international traders.

Hi Dan hope your well
I dropped you an email. I am wondering if we could arrange a meeting in china. Around 11tg September as I am looking at ordering a vast amount of products from china. Are you able to do this? Cheers

I get a couple of emails a month from people who would like to come here and work with me for a year to get a feel for doing business in China. Unfortunately i don’t have the time to do that kind of thing but i will certainly point these people over to your site now as it looks like you could fix them up with a suitable position.

Generally speaking if someone half switched on can spend a year here learning how things work they could probably make a business out of it, i mean look t us two…. haha

If you’re just starting out on importing stuff to the UK or want to test the waters, what are the most efficient ways of doing this when it comes to factoring in customs and VAT etc? From what I’ve seen, duty gets slapped on most products and VAT is slapped on the total cost of the order and shipping – sometimes it looks like the unit profit on a small wholesale order from China is incredibly slim (which is fine if I just want to see how something sells), but then the tax on top just turns the whole thing into a loss. Have I understood that right?

The honest answer is that for a trial order into the UK you can only really use it as a learning curve and you may well make a loss. But then its only a trial, if it works you can order in bulk, hone down the pricing and make a profit.

The majority of sellers you will be competing with will be buying the item in large quantities, perhaps paying a good deal less than you. It sounds obvious but you can’t compete if you order a few hundred dollars worth.

The VAT and duty is as you have stated.

If you go into this with a clean head of what will happen you will make it work, don’t start this expecting profit and smooth sailing from the off, you will lose heart quickly. Don’t give up though, starting is the hard part.

Thanks for the comment, seems like a lot of traffic from Hacker News for this blog post.

Opening the foam factory here has been an extremely challenging, expensive, and stressful process of which i am not sure i would endure again. I encountered a lot of problems that i can’t really write about online but i will try to put together an article giving the nuts and bolts of doing it.

In the end I suppose the general lesson i learnt from the process is that you can’t trust (most if not nearly all) people so you must limit your exposure. Quite sad but its something i have learnt several times over the past decade.

As a foreigner here in China, I can’t begin to tell you how many times I’ve heard the same story about a relative working at so-and-so company so I get these factory direct. Fakes and refurbs also run rampant online where the seller will spew the same story.

People just need to accept, there are no “deals” in China and don’t think you’re getting one by visiting one of these wholesale markets. I have one here in Chengdu, the infamous Lotus Pond market where I see the same thing. It’s actually fun to browser through and as long as you’re willing to accept what you’ve purchased is a knock-off and don’t keep your hopes high, it’s actually an enjoyable experience shopping at one of these places.

Thanks for the comment. How long have you been up there? What are you doing?

I would choose something you either have some good background knowledge in or something you have a good pre made volume customer for. You need at least one of these things to be able to move a product from China. If your exporting it for retail yourself then its a bit different.

It’s really weird as I was sitting in my garden yesterday thinking about how it would be great to have some YMC blogs to read and thinking oh well it was great while it lasted but nothing lasts forever !

I know how busy you are so thought that probably wouldn’t happen anymore but to my amazement (and excitement, shhh) I get this blog notification !

I don’t think it would matter what you write about we all enjoy reading it from getting sugar cane drinks from the chap on the corner to opening up a foam recycling plant !

Last time we spoke was regarding the sub 50 products so was quite a while ago now and wot with your stress with the underlay and then your holiday I haven’t seen you about on Skype for ages !

Hope all is well and hopefully have a chat soon when your not too busy !

What is Young Money China?

This is a personal Blog of me, Daniel Cassidy, a guy from Darlington in the North East of England who has been Importing products since 2002 and in my late twenties decided to move to China to expand on this type of business.

It expresses my own views, experiences and lessons i have learnt with the purpose of sharing the information with other like minded entrepreneurs.

It is not set out to be a guide on how to make money from china or how to import from china but I guess a lot of the information I share will help you do just that.

Im not an expert in business, Im an architect who liked wheeling and dealing more than designing buildings but what I do know has got me this far and will likely help you on your path too.

How can i work with YMC?

I really appreciate people taking the time to read what I write, i do enjoy sharing what i have learnt and I think the internet should be a place where people can learn how to live their dreams, I hope I have helped someone do that.

Obviously I am in business and although I write this blog for free I don't work for free.

I own 2 factories in China and I also run my trading company. Im pretty busy but I would be happy to speak to anyone who is looking to import from China who is genuine in their intentions, realistic about the process and has a minimum of $5000 usd to invest.